Difficult for Kenney to be positive when the price of oil goes negative

"Watching the economic news from Alberta is like witnessing a slow-motion train wreck. Just when you think the worst is over, another railcar smashes into the smouldering heap. This week, adding to the pile-up was negatively-priced oil."

Premier Jason Kenney speaks to media during the Alberta Fight Back strategy presser, in Calgary on July 5, 2019. (Christina Ryan/Star Calgary)

We suspected this was coming. Premier Jason Kenney raised the alarm bells in his the-worst-is-yet-to-come televised address to the province on April 7.

“There is a very real possibility that, as global inventories overflow, our energy will hit negative prices,” said Kenney.

“We will be paying people to take away our resources.”

On Monday, the West Texas Intermediate price of oil per barrel didn’t just dip below zero, it dove in head first to hit negative US $37.63.

Globally, it was a perfectly awful storm of too much supply, too little demand and no storage capacity. Thanks to the pandemic keeping everybody at home instead of driving and flying, the world is drowning in oil. The only thing travelling these days is the COVID-19 virus and until we find a way to clip its wings, demand for oil will remain depressed.

This is a disaster for Alberta on every level. The provincial government based its budget — introduced on February 27 and passed March 17 — on WTI averaging US $58 per barrel this year.

That budget was always a work of fiction, pinning its hopes on a resurgence in oil, a boost in job creation and an overly optimistic bump in economic growth.

But Kenney didn’t want to take off the rose-tinted glasses even when the price of oil began to fall over a cliff in March. Kenney used his majority government to ram through passage of the budget, thus locking in a series of spending reductions that led to job cuts in the public sector, all the while Kenney pressed Ottawa for more money to help laid-off workers.

The glimmer of good news here is that the negative price of oil we saw this week is for oil futures in May. The oil futures for June are forecast to hit US $20.72 a barrel. But that’s still far below Alberta’s hoped-for $58 price in its badly outdated budget.

That budget had forecast a $7-billion deficit this year. In his April 7 Chicken Little address, Kenney warned Albertans the deficit will likely be closer to $20 billion. And that was before oil hit negative prices.

By the time 2020 is over, the province’s treasury will look like Whoville after the Grinch stole Christmas.

A collapse in oil prices isn’t just bad news for Alberta where Husky Energy has cut another $700 million from its capital budget and shut in more than 80,000 barrels per day of production. It’s bad news for the whole country.

“We need to understand that hundreds of thousands of Canadian jobs are on the line,” Kenney said this week. “If we see the current negative price situation continue for any period of time, the implications obviously for this industry are very serious, could not be more serious.”

The implications could not be more serious for Kenney as well. He won the provincial election a year ago on a promise of more jobs and a strong economy. Nobody can blame him for the pandemic or disastrous drop in oil prices.

But critics are questioning the wisdom of the government spending $1.5 billion this year to kickstart the stalled Keystone XL pipeline project into the United States. The government has also pledged $6 billion in loan guarantees for the project next year.

Just last week, a U.S. judge put yet another obstacle in the project’s path by cancelling a key permit because of environmental concerns.

That’s not to say the pipeline won’t get built. But it is to say Alberta has little control over the future of the Keystone project as it wends its way through the U.S. justice system.

But there was another glimmer of good news last week when the federal Liberals announced a $1.7-billion aid package designed to clean up orphan wells in Alberta, Saskatchewan and British Columbia. About $1 billion will go to Alberta where it will help generate about 5,000 jobs.

But in a province where Kenney anticipates unemployment to hit 25 percent, the aid package is a drop in an ocean.

Kenney is pressing Ottawa for up to $30 billion in emergency liquidity aid for struggling oil and gas companies to survive the next 18 months — money that would be dished out in the form of loans.

As the bad news keeps piling up for Alberta, there is one bit of good news. Talk of Wexit has disappeared. The voices of grumpy Albertans who want to separate from Canada have been silenced. Perhaps it has dawned on them that Alberta actually needs Canada, especially when the price of oil goes negative and the province needs billions in aid from the federal government.

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